Shipping containers sit stacked among gantry cranes. (Photographer: SeongJoon Cho/Bloomberg)

Exporters Lose Ground As GST Holds Up Working Capital 

Indian exporters are struggling to pick up new orders, after the implementation of Goods and Services Tax led to a shortage of working capital for them.

“The labour intensive sectors like garment, handicraft, gem and jewellery, carpets have shown a negative growth. This is mainly because no GST refund is given to our exporters,” Ganesh Kumar Gupta, president of the Federation of Indian Export Organisation, told BloombergQuint.

The delay in refunds has tied up the working capital of resulting in lower capacity to take orders. If the government does not rectify this problem, the export figures in November will be even more alarming, he said.

The GST rollout has so far acted as a disruption to businessmen, especially the small and medium enterprises. The labour-intensive sectors pointed out above comprise mostly of such small businesses, Gupta said. Moreover, GST rates are still being changed and tweaked by the council, adding to their confusion.

India's trade deficit in October widened significantly as exports fell for the first time in 15 months, while higher crude and metal prices inflated the import bill. The current account deficit is now at the widest since November 2014.

A Deeper Problem?

The downturn in India’s exports cannot be solely blamed on the country’s new tax regime. Even months before the implementation, exports were declining.

Exporters Lose Ground As GST Holds Up Working Capital 

This is because India’s export intensive industries, such as textile, have been “losing their competitiveness to Bangladesh and Vietnam,” Dharamkirti Joshi, chief economist at brokerage firm Crisil, told BloombergQuint.

The global market is seeing one its strongest and most synchronised cyclical upturns and the European region—a major exporter—is doing reasonably well. This means that the problems with India’s export sector are more internal rather than due to global factors, Joshi said.